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Moving from Tech to Trading?
DJ Paradox asks: "I've been working in IT for around 11 years now and more recently in IT Security within the Finance/Investment Bank arena. I'm looking into the prospects of a change to an entirely different field, working on the trading floor. I've read a few books on trading but most of them seem to be geared toward the Do-It-Yourself-Day-Trader instead of a professional career. I don't have a finance degree but have a permanent position with a good sized global bank and a manager who is willing to help. So I ask Slashdot if anyone has recommendations for courses, books, websites that I should cover to get a head start in this transition. Have any of you made a similar jump? Should I try to move towards a more trader-aligned tech group first and build relationships? Should I try to go for Equities or Futures & Options trading? What markets would be the best to start/learn with?"
Save up more money first. You need to have enough in your account to where you can devote a maximum of 20% into one stock and still make a decent amount of money off of 10% or 20% increases. At the $1000 level, commission fees will likely gobble up any gains.
If you want to "dabble" in day trading, you need at least $15K. Day trading requires you to take out many low risk trades if you want to be successful. And I don't like the word "dabble," as anyone who doesn't go into it hardcore tends to lose money.
Brokers that charge flat fees for trading, and don't charge any maintenance fees, are good. Scottrade and TD Ameritrade are examples.
Do not downmod posts "overrated" simply because you disagree with them.
Floor trading is a pretty extreme job. Most floor traders work their way up from entry level runner positions. One way to avoid that is to buy or lease a seat, the AMEX is pretty cheap these days. Of course, you'll need clients for that.
I like your idea of moving the tech group for a trading group, that would get you in contact with some of the action, and you could get a better idea if it's what you want.
It's exciting, but stressful.
You don't state your level of trading experience (ie have you ever day traded), so I am going to assume you are a complete newbie. Unfortunately, you are going to be way out of your element and will get slaughtered if your only experience comes from books ... and that's if they even let you on a trading floor/pit.
My advice would be to put those grand aspirations on hold and get yourself a trading account from a discount broker (Etrade/TDAmeritrade/Scottrade). Fund the minimum which is usually around 2 grand and start trading. You'll probably wind up losing but the knowledge gained will be worth more than any course or book.
Elite Trader, for example.
some people from my group made the jump to trading. they started developing trader apps, then moved to desk support, and learned enough about the dealio doing support that they moved to trading.
that would be a long-ass road to travel from IT security though. can you code?
long story short, find a job where you get to learn about finance, and if possible, get to know traders and what they do.
It doesn't sound like you have talked to anybody that would actually be your boss if you made the move to the trading floor. Having worked in the same environment, if you had asked them you would know exactly what you need to do to move into that area.
You would probably need to start by going to training for and passing the exams for the Series 11 and Series 63 exams. Furthermore, you would need to be sponsored by your employer to take these exams. You knew that, right?
Oh, and plan on starting at the very bottom and taking a massive paycut for the privilege.
You suggested that you were considering an intermediate move into a more trading-oriented tech group. I think that is a good idea. You can learn a lot from reading, and from more-or-less formal education. I got an MBA in finance and am a CFA. But having day-to-day contact with what's actually done will really help your learning -- and there are some things about the nitty-gritty of trading that you won't learn from books. Also, having more direct exposure will help you make sure this is what you want to do, and will let you see different niches in the market "ecosystem".
Being a successful institutional trader involves a number of skills and personal characteristics. The more you can learn about it going in, the better I think your chances will be. As far as which market: focus on the area that you're most interested in. There is one caution: really understanding the process of valuing options and other derivative securities takes a non-trivial level of math understanding. (I was lucky there -- my undergrad degree is in physics.)
For your training, take that $1000 and set fire to it. Then after you save up another $1000 and set fire to that. Keep on doing this until you can burn the money without getting emotionally wound up about losing the money. Once you get to that point you can then trade objectively and not make stupid rash decisions which will lose you even more money.
I bet there's some of you out there who think I'm joking.
Australian running a company that does C# / C++ / Java / SQL / Python / Mathematica
I would advise you to try to start out as a 'quant' or a developer of 'algorithmic' trading solutions. Quants use programs and math to kick ass on the trading floor. Some quant houses don't care at all about wall st experience because they view things in a statistical/algorithmic way. They always always need good IT people. Think DE Shaw, Barclays, etc. Read Willmott forums and such places for info and job leads. Almost all of these jobs will be in New York/Connecticut and London. Another keyword is 'financial engineering;' there are masters programs that can certify you in this and your background is probably appropriate. Check out 'Financial engineering news.'
Algorithmic trading is another route. Big brokerages all have algorithmic trading platforms, which automatically split up an order into tiny pieces to sell throughout the day, on different exchanges. You could get into working on these systems, which are in a continual arms race, and see where that leads.
The bottom line is to use your IT background. Like most fields, trading is getting more computational/mathematical, not less, so you need to leverage your abilities. Start with solid books like Bodie, Kane and Marcus: Investments and Hull: Options, futures, and derivatives to get some foundational knowledge. Ignore the retail-oriented 'technical' trading/day trading stuff. Read the WSJ and Institutional Investor and things like that.
Good luck.
It has been proven (see The Great Mutual Fund Trap) that day trading is a way to lose. People always jump in too late and jump out too early and have their profits eaten up by fees (which they pay whether they win or lose). The guys in that book reported on an analysis done of Etrade and Ameritrade records. The numbers were very clear.
The only way to win is:
Here's a little info from the book:
They tracked over 1000 mutual funds for 10 years. Of the 1000, 1 (count them... ONE, uno, single) fund gained every year over the DOW. Mutual funds are run by fund managers who know a lot more than you, and have huge resources. Turns out that it is completely random as to wether a fund can beat the DOW.
Every now and them, one fund manager wins big for their fund. And they become hot property. But its random. They will eventually fade.
A side note: there is also a survivorship bias - any mutual fund that does poorly for very long is usually folded into another - that is, it disappears. So the ones that survive are the best, and they aren't better than the DOW on average.
Index funds are the way - they have very small fees, insulate you from any sector tanking, they track the dow, and require 0 effort on your behalf.
The book was a huge eye opener for me, and for the last few years has proven itself.
Trading in options, futures, and other derivative instruments should be reserved strictly for Ph.D's with their own Beowulf cluster, or people who aren't losing enough money by day-trading. You can get in more trouble, quicker, than you can imagine.
Don't dis a finance degree. I did grad work in physics and work at a supercomputing center, and I have a large amount of respect for how hard finance can be. I've taken a few finance classes, and it ain't basketweaving. It's *hard*, in the same way physics is hard. If you think you are going to waltz into that field and compete with degreed people, you are either smarter than I am, or delusional.
Stick with stocks and bonds, but spend a year or two practicing. You don't need to trade stocks every minute/hour/day to make good money. Just look at Warren Buffet. Buy a copy of Ben Graham's "Intelligent Investor" and "Securities Analysis", Marcia Stigum's "The Money Market", Annette Thau's "The Bond Book", Robert Hagstrom's "The Warren Buffet Way", and Jim Collins "Good to Great. Read them, several times, and then test your knowledge with your own money before you blow someone else's.
I think Scottrade has commissions of $7, which E*Trade aproaches if you make enough trades (their commissions start at $15 and go down as you make more trades to $7). But as someone else said, if you've got only $1000 or so to play with, I'd suggest buying and holding some stocks for long-term investments and not really day-trading. Day-trading requires buying/selling stocks on slight upticks, for which the stock commissions (remember, you get them buying AND selling) really eat into for you to make a profit. Ie, a stock increase of a few cents would be useless to you (unless you're playing with penny-stocks which is highly inadvisable), but would be great for someone who bought a few thousand shares.
I trade for a living, though technically speaking I don't day trade.
I agree that you need more money. You can't trade stocks with $1000, even as a hobby. The costs will eat you alive.
I disagree with all the people recommending web-based brokers like Scottrade. If you are serious about trading there's really just one way to go, a direct access broker like Interactive Brokers. They are light years ahead of the web brokers in technology and trading costs are much lower, $1 commissions on up to 200 shares. You can also trade just about any financial instrument in the Western world from one account. You will learn much more about trading using a real direct access platform.
You can also go for your CFA or something similiar depending on how much academic training you want, and if you feel like it would help in getting a job.
Buying and holding an S&P fund as some have mentioned here may be good advice for those unwilling or uncapable of more actively managing their portfolios, but you'll be leaving a ton of money on the table that way. It is possible with a lot of hard work to do much better than that.
A book can't teach you how to trade, but I would read Reminescences of a Stock Operator, Confessions of a Speculator, Practical Speculation, and Common Stocks & Uncommon Profits to get started. William O'Neil's CANSLIM method isn't a bad one to read up on either (IBD). You may want to read up on statistical analysis also. David Dreman's books are a good place to go on value investing. You can also read up on technical analysis, but tread carefully in those waters. There is a lot of nonsense out there.
If I were to give you one piece of trading advice, it would be to CUT YOUR LOSSES, and make preservation of your capital your number one priority. You can't trade if you are out of capital.
Don't paper trade. It is absolutely worthless for learning how to trade. Trading involves a ton of emotion (we're all human), and paper trading is easy because there are no consequences.
Be prepared to lose. A great trader would be one who wins 60% of the time. The key to success is gaining more on the infrequent winners than on the more frequent losers. If you're a perfectionist, and don't like to lose, look for another field.
Look for a niche and exploit it; don't try to go up against the big boys where you have NO edge.
Use the internet. There is a lot of free info out there that is valuable. Just be sure to separate the wheat from the chaff.
Good luck, and remember trading is a ZERO SUM game. Every dollar you make is coming out of someone else's pocket. Don't ever forget that. Your opponents won't!
Don't get discouraged, and be willing to fail, and try again.
Better yet, outsource the burning!
Just sent the $1000 to me and I'll burn it for you.
It'll only cost $100 and also doubles as an introduction to the concept of middlemen.
(tax not included)
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Become an investor, not a trader. Before you buy, research the hell out of interesting stocks. After you buy, hold onto them and continue to study their performance and financial condition. Sell when the cracks (if ever) appear. You'll avoid the hustle and bust of a trader's life (more likely, death) and make more money with less work. It's also boring, which is why it's unpopular.
That said, I'll recommend the following books:
The Intelligent Investory, Ben Graham.
The Essays of Warren Buffett, Cunningham.
Contrarian Investment Strategies, Dreman.
Those books teach what others ignore, that identifying good stocks means identifying good companies. People do make money otherwise by gaming the market, selling on sentiment etc. But then again, you never hear of wealthy traders... investors like Buffett get all the attention, because value investing is what works. Get rich slowly or not at all.
I see no reason why my fellow ./'ers are all so negative towards this issue. All he asked for was help, and not for everyone to shoot his dream down.
As for the things you can do, well that kind of depends on where you are. In the UK you will need to do a number of exams set by the securities and investments institute http://www.sii.org.uk/ Im not entirely sure what your requirements would be in the US. I used to work as a technology risk analyst for an investment bank and our entire team had to the introduction to securities and investments exam.
To get a job on a trading desk, you generally have to go through a whole heap of hoops, but in most cases, it helps if you are a desk support person *note* not trading support (which relates to the support of the hardware/software used by traders)
These jobs require a fair amount of training to be conversant with the setup, i.e. multiple screens,special phones etc. So banks generally train their staff at training centers dotted around the country/world just so they can see those that will cut the mustard
One thing i will say is that you should give day trading / spread betting a go. It will really test your nerve and help you decide if you really want to go ahead with this
Good luck.!
Tis, brakes that allow cars go fast!
But the parent is correct that it will not teach you the most difficult thing - controlling your emotions. Closing out a losing position is much harder than it sounds. It hits your stops and says SELL but every instinct screams at you to hold out.. it going to bounce... and minute now... arg it went down even more, now it's really oversold... I can't sell into this, it's a bull trap... blatent market manipulation. And that's how you blow up a trading account. It doesn't help that things *do* bounce sometimes and that there are real bull traps out there, etc.
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